Insurers’ Cost-Cutting Measures Violate Attorneys’ Ethical Duties, Court Rules

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Consumer Group Says Other States Should Follow Suit

Joining several other states, the Montana Supreme Court has ruled that insurance companies’ billing and practice rules that impose restrictions on an attorney’s ability to fairly represent policyholders violate attorneys’ ethical duties.1 The insurer’s billing plan imposed a system of prior approval, similar to those imposed upon doctors by HMOs, whereby an attorney representing a policyholder would have to seek permission from a claims representative before undertaking the most basic of legal tasks, including scheduling depositions, conducting research, employing experts, or preparing motions.

In reaching its decision, the Montana court rejected insurers’ arguments that the contractual relationship between the insurer and the insured supersedes the attorney-client relationship, stating: “We decline to recognize a vast exception to the Rules of Professional Conduct that would sanction relationships colored with the appearance of impropriety in order to accommodate the asserted economic exigencies of the insurance market.”

“This ruling sends a signal to all insurance companies that the justice system cannot be compromised in favor of their bottom line,” stated Pamela Pressley, staff attorney and organizer of the Fair Justice Project of the Santa Monica, California-based Foundation for Taxpayer and Consumer Rights. “State courts should follow the lead of Montana and other states by giving attorneys a bright line standard that will allow them to refuse to participate in insurers’ abusive practices.”

The Montana case follows the reasoning of several other state courts that have reached similar conclusions, including a Tennessee Supreme Court opinion that stated: “Any policy, arrangement or device which effectively limits, by design or operation, the attorney’s professional judgment on behalf of or loyalty to the client is prohibited by the Code [of Professional Conduct], and undoubtedly, would not be consistent with public policy.2

FTCR has previously criticized insurers’ litigation “cost-cutting” measures that jeopardize the justice system in its 1999 report, Insurance Companies and other Corporate Defendants Strike Special Deals with Officers of the Court: A Growing Threat to the Impartiality of the Justice System. The report chronicles abusive practices by insurers who have demanded that their counsel use only deposition court reporting agencies with whom the insurers have a blanket contract to report depositions in all their litigation.

“Attorneys are not the only officers of the court whose ethical duties are being compromised by insurers’ efforts to boost their profits by cutting corners,” stated Pressley. “In the name of saving money, insurance companies are entering into long-term, exclusive arrangements with certain court reporters which certainly create an appearance of impropriety at the very least.”

According to FTCR’s report, insurers’ special deals with court reporters jeopardize the independence and impartiality of the neutral court reporter by requiring special treatment and services not made equally available to opposing parties in litigation, such as providing access to secret witness databases, providing profiles on witnesses, and expediting the delivery of deposition transcripts at no cost.

Judges organizations including the American Judges Association (AJA) and the National Conference of Metropolitan Courts have adopted resolutions to support legislative and judicial efforts to stop preferential insurer agreements with court reporters. Currently, seventeen states have such legislation or court rules, including Hawaii, Texas, Minnesota, Utah, West Virginia, New Mexico, Georgia, Louisiana, Nevada, Kentucky, Michigan, Arkansas, Indiana, North Carolina, Oregon, Illinois and South Dakota.


Click here to order the FTCR report on insurers’ special deals with court reporting agencies.

The Foundation for Taxpayer and Consumer Rights (FTCR) is a tax-exempt, nonprofit organization dedicated to advancing and protecting the interests of consumers and taxpayers.

1. In the Matter of the Rules of Professional Conduct and Insurer Imposed Billing Rules and Procedures, (Mont. 2000) 2000 WL 502545 (Mont.)

2. In Petition of Youngblood (Tenn. 1995) 895 S.W.2d 322, 328.

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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